Slam on the tax breaks to boost earnings
MANY OF US ARE UNAWARE OF THE BENEFITS ON OFFER THAT COULD EASE THE HOUSEHOLD BUDGET. LET TRICIA PHILLIPS GUIDE YOU
INFLATION has risen again and that means less money in everyone’s pocket as wages fall behind price hikes.
So, it’s time to get canny with your cash to ensure you get everything you are entitled to.
There are lots of allowances that are not used, meaning millions in tax is overpaid, and many people fail to claim benefits that are sitting waiting for them, too.
With a little planning, many people could make a significant difference to their household budget.
Vince Smith-Hughes, retirement expert at Prudential, says: “Rising prices and the fact that many people’s incomes have remained static over the past few years means many households’ budgets are being squeezed.
“That’s why it’s important to make sure that you use all the allowance available – it effectively means giving yourself a pay rise.
“Married couples, for example, should make sure they claim the marriage allowance if eligible, and they should also plan to be able to use both personal allowances in retirement, which allows them to earn £23,000 as a couple without paying tax”.
Here are some ways you can make your money work harder:
PERSONAL ALLOWANCE
WHETHER you are working for a business or are self-employed, you can currently earn up to £11,500 before having to pay tax.
With some careful planning in advance of retirement it’s often possible for pension contributions to be split between a couple, meaning more of the combined personal allowance is available.
A combined tax-free income of £23,000 is attractive.
MARRIAGE ALLOWANCE
MARRIED couples can benefit as this allowance lets you transfer £1,150 of your personal allowance to your husband, wife or civil partner if they earn more than you. It reduces their tax bill by £230.
The person passing on their slice of allowance needs to be earning less than £11,500, and the person it is passed to must have income of between £11,500 and £45,000 (or £43,000 if living in Scotland).
You can also apply for the Marriage Allowance if you or your partner are currently receiving a pension or are living abroad – as long as you get a Personal Allowance. If you or your partner was born before April 6, 1935, you might benefit more as a couple by applying for Married Couple’s Allowance instead.
Vince says: “Around 4.2 million married and civil partner couples are eligible for the free tax break. New figures published by HMRC reveal more than 1.3 million couples across the UK have already benefited.”
Applications can be backdated to April 5, 2015 – meaning over three years the tax break could be worth £662 in total.
Apply for Marriage Allowance via gov.uk/marriage-allowance or call 0300 200 3300.
CHILD BENEFIT
EVEN if you choose not to receive Child Benefit payments, it is still worth filling in the claim form because it will help you to get National Insurance credits which count towards your State Pension, and ensures your child is registered to get an NI number when they are 16 years old.
To qualify for Child Benefit you need to be responsible for a child under 16 (or under 20 if they stay in approved education or training). You may have to pay a tax charge if you or your partner’s individual income is over £50,000.
It may be that if you are paying a pension contribution you not only benefit from the tax relief but also recoup some or all of your child benefit if you earn over £50,000.
NATIONAL INSURANCE
GAPS in employment due to unemployment or taking time out to care for dependents could mean you won’t have enough years of NI contributions to qualify for the full State Pension.
It can be possible to pay voluntary contributions to fill any gaps. Just ensure the sums add up – be clear about what you get in return for topping up and how long it takes to break even.
You may also be eligible for NI credits if you claim benefits because you can’t work, are unemployed, or caring for someone. Visit gov.uk/voluntarynational-insurance-contributions to find out about filling in NI contribution gaps, or gov.uk/national-insurancecredits/eligibility to find out
more about NI credits.
SALARY SACRIFICE SCHEMES
YOU give up part of your salary in return for non-cash benefits such as childcare vouchers or increased pension contributions.
Once you accept a salary sacrifice your gross pay is lower, so you pay less tax and NI.
TRACING LOST PENSIONS
MILLIONS of pounds is languishing in lost or forgotten pension pots.
Cast your mind back to jobs in the past where you paid pension contributions as you could benefit from money saved into pots.
The Pension Tracing Service can help track them down at gov.uk/ find-pension-contact-details, or call 0345 6002 537.
CONSULTING AN INDEPENDENT FINANCIAL ADVISER
WHILE it costs to see an independent financial adviser, it could be money well spent as they can ensure you don’t pay too much tax, especially when accessing pension savings.
They can also ensure you are investing in the most suitable products.
There’s also free guidance on defined contribution pensions for the over-fifties at pensionwise.gov. uk, or call 0800 138 3944.